Additionally, wheat is a staple crop in this country and a decline in its output would compel the government to import this commodity with our scarce foreign exchange reserves with obvious negative repercussions on the already unsustainable balance of payment position.
There is no doubt that the government is responsible for setting the price of major farm inputs including water, electricity and fertilisers. It is equally evident that it has been unable to implement appropriate demand management policy measures with respect to farm inputs including ensuring that all fuel prices are equal premised on their calorific value and ensuring that the fertiliser industry has access to gas that it requires as a critical input. Pricing of utilities therefore is not according to basic economic principles while subsidies are not targeted implying thereby that in principle the rich and influential enjoy subsidies equal to those enjoyed by the vulnerable. However, the contention that the poor and rich farmer would benefit equally from higher support price is also flawed for the reason that a poor farmer simply does not have the capital to invest in maximising the yield per hectare through optimising the use of inputs like say fertilisers or higher yielding seed varieties. The beneficiary in this case remains the middle man and the rich and middle-income farmers leaving, hundreds of thousands of subsistence farmers in this country unable to benefit from higher support price.
The above rationale, however, ignores two relevant prevailing factors. First and foremost, raising the support price of wheat would automatically raise the cost of flour for the common man or in other words food inflation, that has remained intractable at double-digit for the past four years, would be further fuelled. Needless to add, the major sufferers would be the vulnerable groups of society. In the event that the government extends the higher support price of wheat as a subsidy to be absorbed by the budget then too the outcome would be higher inflation as the fiscal deficit would witness a commensurate rise. In effect, therefore, higher wheat support price would benefit neither subsistence farmer nor consumer.
Secondly and equally pertinently, support price in principle distorts the capacity of the government to benefit from say a decline in the price of the farm output in the international marketplace. There have been instances for example, when domestic cost to the consumer has been higher than if the government had imported wheat. To deal with this scenario it is imperative that subsidies, inclusive of support price, must be carefully set. To put the rise in support price in perspective it is relevant to note that Pakistan is currently urging Iran to import Pakistani wheat and the Iranian technical experts are engaged in determining whether the prevalence of karnal bunt in the wheat stock is low enough to meet the Iranian market's requirements. Given this fact one wonders if the wheat cultivation plus stocks are sufficient to meet local demand which would simply render any rise in support price unjustifiable.